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Monday, September 18, 2017

What Harvey and Irma Prove about Markets

There are some realities about economics and prices that not even hurricanes can blow away.

It’s the little things.

The response to our back-to-back hurricanes — from both the public sector and from civil society — shows that the American people and their institutions have made substantial improvements in their ability to endure national crises since the two hallmark catastrophes of the George W. Bush era: the 9/11 attacks and Hurricane Katrina.

Considering these improvements, Richard Fausset of the New York Times identifies a heroes’ gallery of little deliverances: We’ve improved our building codes and construction practices; we have smartphones that make distributing and consuming critical data considerably easier than it was during 9/11 and Katrina, both of which happened in the pre-iPhone era; federal, state, and local governments have streamlined their protocols for sharing information and coordinating relief efforts; we have better weather forecasts than we did even a few years ago; FEMA has learned how to deputize and empower the populace: “They’re the real emergency medical workers,” former FEMA boss Richard Serino tells the Times.

That’s what real progress looks like: There was no great moral crusade, no dramatic moment of national unity, no stern man on a white horse riding in to set things straight. Hospitals learned to put their generators up off the ground to protect them from floodwaters and put in better flood-control doors. We’ve learned to build a little better each year. FEMA has begun to figure out that its headquarters may be in Washington but its business is everywhere in the country, subject to events. The nice people in Cupertino built a phone that could do a lot of different things, and then they made it a little better each year — and their competitors kept at their heels.

That’s what a healthy society looks like.

What We’re Really Arguing About

Progressives and libertarians spend a great deal of time arguing about the problem of social coordination. A typical lefty looks at the excellent responses in Houston and Florida and says: “See? See? That’s what you get from having additional federal resources and stricter regulation mandated by government!” (That is, for the record, almost verbatim what one progressive correspondent wrote to me after the storms.) The more libertarian-minded person might say: “Well, sure, but how about that Cajun navy? How about those smartphone apps telling people which retailers have gasoline and other supplies?”

Sure, we can say the minimum wage is $x per hour, but who counts as an employee? The private sector — which includes profit-oriented market operators, churches and other philanthropic organizations, civic associations, and, not least, just ordinary people taking the initiative on their own — undertakes social coordination at the granular level. One of the implications of Say’s Law in economics — that we produce in order to consume — is that we seek to make our own lives better by discovering ways to make other people’s lives better. The most common way to do that is through market exchange: The apple-farmer trades his apples for your oranges and somebody else’s bacon and yet somebody else’s pediatric medical services or smartphone apps. But we also act out of other motives which, if they are indeed truly self-interested, are so in only a distant fashion. The Shriners and the Knights of Columbus and the millions of Americans involved in volunteer work surely get something out of it, but mostly what they get out of it is helping to create the sort of society in which they’d prefer to live, one in which kindness and public-spiritedness do not require accompanying political and economic theories but simply are good per se.

The public sector, when it is functioning in the right way, mostly performs social coordination on more general terms. It protects property and keeps the civil peace, and it regulates some activities, economic and noneconomic, through generally applicable laws and regulations. There is always a tension between generality and specificity in regulator affairs: We want our regulations to be general because we want everybody to be treated the same way under the law and because we want our legal regime to be transparent and predictable. But it is rare that we can avoid getting into details: Sure, we can say the minimum wage is $x per hour, but who counts as an employee? Your babysitter? The guy who cuts your grass? A private-equity investor who takes no wage at all and who may in fact have a loss to show for all his labor if the deal turns sour? That’s relatively simple. But a regulation demanding that buildings in hurricane-prone areas should have high levels of endurance for wind and rain requires a whole beach’s worth of granular material. A 40-story office tower isn’t a beachfront house isn’t a factory isn’t a nuclear-weapons facility.

Conservatives prefer to sort that out with a particular set of tools: federalism, localism, choice, competition, market-based alternatives, subsidiarity, experimentation, risk-mitigation, etc. Progressives generally prefer consolidation and nationalization — if it’s good to have 50 states regulating flood control, it’s even better to have one superior federal flood-control standard. The competition between those two approaches represents a great deal of what we argue about when we argue about policy differences — though in practice we spend a lot more time arguing that Hillary Rodham Clinton is evil or that Paul Ryan wants to kill your grandmother than arguing about policy differences. But when we get around to the policies, that’s what we often end up talking about. Of course we should plan for disasters, economic changes, the risk of climate change, etc. But: Who plans for whom? The guy with supplies to sell has, either through luck or foresight, managed to put himself in possession of what you need — and you did not. If that hurts — it should.

What Does This Have To Do With Markets?

Real material and social progress is rarely made up out of glorious and dramatic crusades. Consider that the next time you hear a politician complaining about “price gouging” during a crisis, a dopey complaint for which both Left and Right have a weakness. Price gouging is treated as moral abomination and, at times, as a legal offense. You know what price-gouging is? A public service. Prices are how we ration scarce goods, and the pain associated with paying unusually high prices is how we learn not to put off laying in supplies until after the disaster has already happened. The guy with supplies to sell has, either through luck or foresight, managed to put himself in possession of what you need — and you did not. You don’t have to thank him, but you do have to pay his price. The profit he makes encourages him to keep planning for the future. If that hurts — it should. Maybe you’ll learn to do better next time. But the alternative to paying the higher prices isn’t paying a lower price — it is having no gasoline or water or toilet paper at all, at any price. You can try to regulate away that reality; ask the Venezuelans how that’s going for them.

Real material and social progress is rarely made up out of glorious and dramatic crusades, though we are called to crusade from time to time: Hitler ain’t gonna whup his self. Real progress is a hundred million entrepreneurs, researchers, product-development guys, and their competitors all scheming day and night to make your phone incrementally better, year in and year out. It’s also university scholars doing basic science research and FEMA desk-monkeys studying maps of the bayou network in Houston, staffers at congressional subcommittees doing the necessary grunt-work of good government that even C-SPAN won’t cover. The hard work of good government and good citizenship is gloriously boring.

But there isn’t any substitute for it.

Reprinted from National Review